Risk apportionment and stochastic dominance
Author: Eeckhoudt, Louis ; Schlesinger, Harris ; Tsetlin, IliaINSEAD Area: Decision Sciences Series: Working Paper ; 2007/45/DS Publisher: Fontainebleau : INSEAD, 2007.Language: EnglishDescription: 24 p.Type of document: INSEAD Working Paper Online Access: Click here Note: Please note that no copies are availableAbstract: This paper characterizes higher order risk effects, such as prudence and temperance, via preferences that partially order a set of simple 50-50 lotteries. In particular, consider the random variables , , and , and assume that dominates via ith-order stochastic dominance for i = M, N. We show that the 50-50 lottery [ + , + ] dominates the lottery [ + , + ] via (N+M)th-order stochastic dominance. A preference ranking over these lotteries is shown to characterize higher orders of risk preference. We apply our results in several examples of decision making under risk.| Item type | Current location | Collection | Call number | Status | Date due | Barcode | Item holds |
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Digital Library | Available | BC007998 |
Please note that no copies are available
This paper characterizes higher order risk effects, such as prudence and temperance, via preferences that partially order a set of simple 50-50 lotteries. In particular, consider the random variables , , and , and assume that dominates via ith-order stochastic dominance for i = M, N. We show that the 50-50 lottery [ + , + ] dominates the lottery [ + , + ] via (N+M)th-order stochastic dominance. A preference ranking over these lotteries is shown to characterize higher orders of risk preference. We apply our results in several examples of decision making under risk.
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